Bot Wars (Elan)

As I’ve watched the action since the recent update on PML cases, the stock in Elan has been dominated by selling bots, but today, finally, it looks like buying bots are coming in to the game.

The selling bots are simple algorithmic programs that sample the market for orders, and then electronically place orders to interact with that market and achieve a macro goal.

In the case of Elan, I believe that some large shareholders (of the 1 to 10 million share variety) decided to lighten up or even get out after the latest round of medical research suggested that maybe the approach of attacking brain plaque isn’t going to be the winner in the Alzheimer’s sweepstakes.

How do I know they are bots at work, and not people?

First of all, it’s the speed with which the bid/offer sizes change, even if the trading volume is going nowhere.  Secondly, it’s the ratios of bids to offers.

When the bid size gets smaller, so does the offer, and vice versa.  The ratios, on the other hand, seem to stay in a tighter range — something between 1.25 to 1 and 2.5 to one in favor of the sellers (until today when the stock hit $4.75).

Admittedly I’m watching the ADR’s and not the “parent” stock that trades in Ireland.  Still, with the ADR’s trading north of a million shares a day, I think the observation is valid.

Uh, oh.  I may have pulled an Emily Litella.  After a brief pulse of buying at $4.75, the offers continue to range from slightly larger to twice as large as the bids.

I sure hope the selling shareholders finish their work soon.

I’m staying in because the reversal from loss to profit was so significant for this company, and because the fear of threats of new MS treatments misses the reality of deliberately slow uptake on any drug that has serious side effects (as the oral MS treatments have).  There will be months spent developing safety monitoring like the  “Touch” program BIIB and ELN instituted for PML detection with Tysabri.

Even though we hear about a dozen or so new cases of Tysabri-related PML per year, we don’t seem to hear about any fatalities, unlike the crucial first few cases that led to BIIB pulling it off the US market back in 2005.

A few large shareholders are easing their way out using algo trading over a period of days or even weeks.  I can take that.  Elan is already trading to less than half the market capitalization of another of my late-stage (now approved) drug science companies, Dendreon.

At $2.24 billion, I think Elan’s market cap is now too small compared to its sales and future profits, even from Tysabri alone.

hh

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One Response to Bot Wars (Elan)

  1. GeorgeR says:

    I’m short the July $5 Puts and appreciate your continuing comments on this issue.

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